Abneesh Roy
Executive vice president, Edelweiss Securities
DMart is a zero-debt company with a good net cash reserve and extremely strong in the offline space. We believe it is fairly valued and a good stock to buy for two to three years. Of course, Jio, Amazon and Flipkart are getting more aggressive, but they will expand share of organised players. DMart offers the lowest prices every day, which has helped it build a loyal customer base. Its growth is expected to sustain with additional 59 stores in balance part of FY21 and FY22. They are also open to having 20% of leased properties now, as opposed to them owning the stores completely earlier. This is a good decision since rental costs have fallen due to COVID-19.
DMart has always been cautious and takes measured decisions. The management lets the numbers do the talking. The stock enjoys a high valuation because it has shown excellence in execution over the years. We believe that it is a good compounding story for the next few years. The company can see 20-25% CAGR growth. The stock may seem expensive, but that can be attributed to its strong fundamentals.
Bharat Chhoda
AVP-research, ICICI Securities
DMart’s business relies on passing the benefit of cheaper rates to customers with a sharp product positioning leading to customer stickiness. It sees healthy gross margin of 15-16% during normal times and has a high asset turnover. But, Q1FY21 revenue growth was hit due to COVID-19 and there are concerns that its e-commerce growth is not speeding up. Moreover, competition from prominent players with deep pockets is increasing. Even so, DMart is looking at compensating lower store addition in FY21 with accelerated store additions in FY22.
They are conservative about leasing stores, as they would like to sign contracts for 15-20 years at once. Even in the long-term, they don’t want to go beyond 20% in leasing stores. They want to have better control over products, pricing, inventory and even real estate. It is difficult to say at this stage, if such a move will turn out to be counter-productive.
Q1FY21 margins were also negatively impacted owing to restrictions on sale of general merchandise, which have higher margin. Also, the company had to incur additional cost as it provided incentives to frontline staff to keep working during April and May. In terms of its current valuation, the stock looks richly valued.
